Russian Energy Ministry opposes raising excises on Euro 4 and 5 gasoline
MOSCOW. April 12 (Interfax) - Russia's Energy Ministry does not support the Finance Ministry's proposal to raise excises on Euro 4 and Euro 5 gasoline, Energy Minister Alexander Novak said in an interview with Rossiya 24 television.
"To raise excises and thus disincentivize the investments that have been made in oil refining, in my view this is not quite right," Novak said.
He said the Finance Ministry's proposal is motivated by the fact that production of Euro 5 gasoline has grown more rapidly than forecast at the end of last year. Excises on this gasoline are nearly two times lower than on Euro 3 gasoline. However, the lower excise was introduced to encourage production of cleaner, more environmentally friendly fuel.
"We planned that of the 36 million tonnes of gasoline in the balance in 2013, production of class 5 gasoline would be about 5 million tonnes, but according to data for January-March we will produce 16 million tonnes of class 5 gasoline instead of class 3. This is good. The excise is far lower in this gasoline. This was done especially in order to stimulate investment in refining and production of such gasoline, and oil companies moved at a faster pace to modernize their oil refineries and produce this class," Novak said.
"We need to look at the oil sector as a whole, and not specifically take positions related to increasing excises, duties on fuel oil, raising the natural resource extraction tax on oil," Novak said.
"We need to change the rules of the game less often, and then investment will flow into the sector. If we will change the tax system every time, this will not be good," the minister said.
On the other hand, he conceded that the increase in production of Euro 4 and Euro 5 gasoline had reduced excise revenues. Therefore, the Energy Ministry and Finance Ministry will work together to solve this problem. The final decision will be up to the government.
"This should be a balanced decision that would not disincentivize the sector," Novak said.
The Finance Ministry's proposals to increase the fuel oil export duty, excise taxes on class 4 and 5 gasoline and the NRET for oil were made after it became clear that the road funds needed to close a funding shortfall of 100 billion-120 billion rubles over the next three years owing to the halt in production of class 2 gasoline and scheduled reductions in the excise taxes on class 4 and 5 gasoline.
To compensate the shortfall, the ministry suggested above all that excises on class 4 and 5 gasoline be raised to the level of excises on class 2 and 3 gasoline, or be approximately doubled within three years.
If that does not work, the Finance Ministry suggests raising the export duty on fuel oil sooner than planned. As of now, the plan is to raise the duty from 66% to 100% of the duty on crude oil in 2015, but the ministry thinks it could be raised to 73%-75% of the duty on crude as early as 2014 and to 100% in 2015.
If not even this is able to save the highway funds the ministry proposes to hike the NRET by 5% in 2014-2016.